SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q/A
Amendment No. 2
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 | |
| OR | ||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FROM THE TRANSITION PERIOD FROM TO | |
COMMISSION FILE NUMBER 1-7521
FRIEDMAN INDUSTRIES, INCORPORATED
| TEXAS (State or other jurisdiction of incorporation or organization) |
74-1504405 (I.R.S. Employer Identification Number) |
4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028-5585
(Address of principal executive office) (zip code)
Registrant’s telephone number, including area code (713) 672-9433
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
| Yes X | No |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes | No X |
At September 30, 2004, the number of shares outstanding of the issuer’s only class of stock was 7,595,239 shares of Common Stock.
EXPLANATORY NOTE
This quarterly report on Form 10-Q/A (“Form 10-Q/A”) is being filed to amend our quarterly report on Form 10-Q for the quarter ended September 30, 2004 (the “Original Form 10-Q”) filed with the Securities and Exchange Commission (“SEC”) on November 15, 2004, as amended by Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) filed with the SEC on February 14, 2005. Accordingly, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Form 10-Q/A contains complete text of Item 1 of Part 1 and Item 6 of Part II as amended, as well as currently dated certifications.
By letter dated April 13, 2005, the SEC’s Staff provided comments to the Company relating to Item 4.02 of the Company’s Form 8-K filed with the SEC on February 11, 2005. In response thereto, the Company has added Note F to the Condensed Notes to Quarterly Report Unaudited included herein in Item 1. Financial Statements.
We have not updated the information contained herein for events occurring subsequent to November 15, 2004, the filing date of the Original Form 10-Q, except as previously modified in Amendment No. 1 to reflect the restatement of the Company’s consolidated financial statements for the three and six months ended September 30, 2004. We recommend that this report be read in conjunction with our reports filed subsequent to November 15, 2004.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
| SEPTEMBER 30, 2004 | MARCH 31, 2004 | ||||||||||
Unaudited (Restated) |
|||||||||||
CURRENT ASSETS: |
|||||||||||
Cash and cash equivalents |
$ | 7,099,433 | $ | 1,984,763 | |||||||
Accounts receivable, net of allowances for bad debts and cash
discounts of $37,276 and $44,776 at September 30, 2004 and
March 31, 2004, respectively |
15,817,403 | 14,688,702 | |||||||||
Inventories |
19,933,110 | 21,043,992 | |||||||||
Other |
322,404 | 112,244 | |||||||||
TOTAL CURRENT ASSETS |
43,172,350 | 37,829,701 | |||||||||
PROPERTY, PLANT AND EQUIPMENT: |
|||||||||||
Land |
437,793 | 437,793 | |||||||||
Buildings
and yard improvements |
4,088,149 | 4,088,149 | |||||||||
Machinery and equipment |
18,497,977 | 18,013,461 | |||||||||
Less accumulated depreciation |
(16,276,518 | ) | (15,846,288 | ) | |||||||
| 6,747,401 | 6,693,115 | ||||||||||
OTHER ASSETS: |
|||||||||||
Cash value of officers’ life insurance |
528,590 | 1,302,613 | |||||||||
Deferred
income taxes |
143,694 | 202,694 | |||||||||
TOTAL ASSETS |
$ | 50,592,035 | $ | 46,028,123 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||
CURRENT LIABILITIES: |
|||||||||||
Accounts payable and accrued expenses |
$ | 12,100,552 | $ | 10,204,653 | |||||||
Current portion of long-term debt |
23,081 | 63,037 | |||||||||
Dividends payable |
607,759 | 151,500 | |||||||||
Income taxes payable |
223,714 | 1,134,433 | |||||||||
Contribution to profit sharing plan |
134,000 | 280,000 | |||||||||
Employee compensation and related expenses |
983,706 | 806,140 | |||||||||
Deferred credit for LIFO replacement |
157,520 | — | |||||||||
TOTAL CURRENT LIABILITIES |
14,230,332 | 12,639,763 | |||||||||
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS |
389,904 | 356,756 | |||||||||
STOCKHOLDERS’ EQUITY: |
|||||||||||
Common stock, par value $1: |
|||||||||||
Authorized
shares — 10,000,000 |
|||||||||||
Issued and outstanding
shares — 7,595,239 and 7,575,239 at September 30, 2004 and March 31, 2004, respectively |
7,595,239 | 7,575,239 | |||||||||
Additional paid-in capital |
27,742,409 | 27,714,669 | |||||||||
Retained earnings(deficit) |
634,151 | (2,258,304 | ) | ||||||||
TOTAL STOCKHOLDERS’ EQUITY |
35,971,799 | 33,031,604 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 50,592,035 | $ | 46,028,123 | |||||||
2
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED
| Three
Months Ended September 30, |
Six
Months Ended September 30, |
|||||||||||||||||
| (Restated) 2004 |
2003 | (Restated) 2004 |
2003 | |||||||||||||||
Net sales |
$ | 49,020,241 | $ | 25,410,689 | $ | 93,935,945 | $ | 50,614,859 | ||||||||||
Costs and expenses |
||||||||||||||||||
Costs of goods sold |
43,994,292 | 23,910,932 | 84,709,449 | 47,166,445 | ||||||||||||||
General, selling and administrative costs |
1,506,856 | 1,045,949 | 3,159,337 | 2,280,044 | ||||||||||||||
Interest |
— | 14,374 | — | 23,106 | ||||||||||||||
| 45,501,148 | 24,971,255 | 87,868,786 | 49,469,595 | |||||||||||||||
Interest and other income |
(51,120 | ) | (1,873 | ) | (61,083 | ) | (4,021 | ) | ||||||||||
Earnings before income taxes |
3,570,213 | 441,307 | 6,128,242 | 1,149,285 | ||||||||||||||
Provision (benefit) for income taxes: |
||||||||||||||||||
Current |
1,274,080 | 159,045 | 2,189,280 | 408,758 | ||||||||||||||
Deferred |
35,000 | (9,000 | ) | 59,000 | (18,000 | ) | ||||||||||||
| 1,309,080 | 150,045 | 2,248,280 | 390,758 | |||||||||||||||
Net earnings |
$ | 2,261,133 | $ | 291,262 | $ | 3,879,962 | $ | 758,527 | ||||||||||
Average number of common shares outstanding: |
||||||||||||||||||
Basic |
7,581,906 | 7,573,239 | 7,578,572 | 7,573,239 | ||||||||||||||
Diluted |
7,785,196 | 7,632,571 | 7,756,424 | 7,615,163 | ||||||||||||||
Net earnings per share: |
||||||||||||||||||
Basic |
$ | 0.30 | $ | 0.04 | $ | 0.51 | $ | 0.10 | ||||||||||
Diluted |
$ | 0.29 | $ | 0.04 | $ | 0.50 | $ | 0.10 | ||||||||||
Cash dividends declared per common share |
$ | 0.08 | $ | 0.03 | $ | 0.13 | $ | 0.06 | ||||||||||
3
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
| Six
Months Ended September 30, |
|||||||||||
| (Restated) 2004 |
2003 | ||||||||||
OPERATING ACTIVITIES |
|||||||||||
Net earnings |
$ | 3,879,962 | $ | 758,527 | |||||||
Adjustments to reconcile net income to cash provided by
operating activities: |
|||||||||||
Depreciation |
441,600 | 465,000 | |||||||||
Provision for deferred taxes |
59,000 | (18,000 | ) | ||||||||
Provision for postretirement benefits |
33,148 | — | |||||||||
Decrease (increase) in operating assets: |
|||||||||||
Accounts receivable |
(1,128,701 | ) | 690,350 | ||||||||
Inventories |
1,110,882 | 1,650,910 | |||||||||
Other |
(210,160 | ) | (324,339 | ) | |||||||
Increase (decrease) in operating liabilities: |
|||||||||||
Accounts payable and accrued expenses |
1,895,899 | (4,075,317 | ) | ||||||||
Contribution to profit-sharing plan payable |
(146,000 | ) | (128,000 | ) | |||||||
Employee compensation and related expenses |
177,566 | (6,534 | ) | ||||||||
Federal income taxes payable |
(910,719 | ) | (251,242 | ) | |||||||
Deferred credit for LIFO replacement |
157,520 | — | |||||||||
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES |
5,359,997 | (1,238,645 | ) | ||||||||
INVESTING ACTIVITIES |
|||||||||||
Purchase of property, plant and equipment |
(496,427 | ) | (277,850 | ) | |||||||
(Increase) decrease
in cash value of officers’ life insurance |
774,023 | (6,919 | ) | ||||||||
Proceeds from sale of asset |
542 | — | |||||||||
NET
CASH PROVIDED (USED) IN INVESTING ACTIVITIES |
278,138 | (284,769 | ) | ||||||||
FINANCING ACTIVITIES |
|||||||||||
Cash dividends paid |
(531,249 | ) | (378,649 | ) | |||||||
Principal payments on notes payable |
(39,956 | ) | (31,721 | ) | |||||||
Increase in notes payable |
— | 2,000,000 | |||||||||
Exercise of stock options |
47,740 | — | |||||||||
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES |
(523,465 | ) | 1,589,630 | ||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
5,114,670 | 66,216 | |||||||||
Cash and cash equivalents at beginning of period |
1,984,763 | 673,127 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 7,099,433 | $ | 739,343 | |||||||
4
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED
SIX MONTHS ENDED SEPTEMBER 30, 2004
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited condensed, consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended March 31, 2004.
NOTE B — INVENTORIES
Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory consists primarily of raw materials, non-standard coil inventory consists primarily of finished goods and tubular inventory consists of both raw materials and finished goods. Inventories are valued at the lower of cost or replacement market value. Cost for prime coil inventory is determined under the last-in, first-out (“LIFO”) method. Cost for non-standard coil inventory is determined using the specific identification method. Cost for tubular inventory is determined using the weighted average method.
During the quarter ended September 30,2004, LIFO inventories were reduced but are expected to be replaced by March 31, 2005. Accordingly, a deferred credit for LIFO replacement of $157,520 to reflect the expected cost of such replacement was recorded at September 30, 2004.
A summary of inventory values follows:
| September 30, | March 31, | |||||||
| 2004 | 2004 | |||||||
Prime
Coil Inventory |
$ | 7,661,637 | $ | 4,976,300 | ||||
Non-Standard
Coil Inventory |
939,742 | 4,181,815 | ||||||
Tubular Raw Material |
3,557,822 | 3,515,060 | ||||||
Tubular Finished Goods |
7,773,909 | 8,370,817 | ||||||
| $ | 19,933,110 | $ | 21,043,992 | |||||
NOTE C — LONG-TERM DEBT
The following summary reflects long-term debt including the current portion thereon:
| September 30, 2004 | March 31, 2004 | |||||||
Notes payable on equipment purchases |
$ | 23,081 | $ | 63,037 | ||||
The Company has a $6 million revolving credit facility which expires April 1, 2006. There were no amounts outstanding pursuant to the facility at September 30, 2004 or March 31, 2004.
NOTE D — STOCK BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), for its employee stock options. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
The following schedule reflects the impact on net income and earnings per common share if the Company had applied the fair value recognition provisions of Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to stock based employee compensation for each period indicated:
| Three
Months Ended September 30, |
Six
Months Ended September 30, |
|||||||||||||||||
| (Restated) 2004 |
2003 |
(Restated) 2004 |
2003 |
|||||||||||||||
Reported
net income |
$ | 2,261,133 | $ | 291,262 | $ | 3,879,962 | $ | 758,527 | ||||||||||
Less:
compensation expenses per SFAS No. 123, net of tax |
.00 | .00 | .00 | 31,582 | ||||||||||||||
Pro
forma net income |
$ | 2,261,133 | $ | 291,262 | $ | 3,879,962 | $ | 726,945 | ||||||||||
BASIC
EARNINGS PER COMMON SHARE: |
||||||||||||||||||
Reported
net income |
.30 | .04 | .51 | .10 | ||||||||||||||
Less:
compensation expense per SFAS No. 123, net of tax |
.00 | .00 | .00 | .00 | ||||||||||||||
Pro
forma net income |
.30 | .04 | .51 | .10 | ||||||||||||||
DILUTED
EARNINGS PER COMMON SHARE: |
||||||||||||||||||
Reported
net income |
.29 | .04 | .50 | .10 | ||||||||||||||
Less:
compensation expense per SFAS No. 123, net of tax |
.00 | .00 | .00 | .00 | ||||||||||||||
Pro
forma net income |
.29 | .04 | .50 | .10 | ||||||||||||||
During the six months ended September 30, 2004, options for 20,000 shares Common Stock were exercised which resulted in proceeds of $47,740 to the Company. In the 2004 period, no options were granted.
The fair value of options was estimated using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 3.0%, a dividend yield of 3.4%, volatility factor of the expected market price of the Company’s common stock of 0.42, and a weighted average expected life of the option of four years.
5
NOTE E — SEGMENT INFORMATION
| Three Months Ended September 30 |
Six
Months Ended September 30 |
|||||||||||||||||
| (Restated) 2004 |
2003 |
(Restated) 2004 |
2003 |
|||||||||||||||
Net sales |
||||||||||||||||||
Coil |
$ | 28,157 | $ | 13,157 | $ | 54,693 | $ | 26,552 | ||||||||||
Tubular |
20,863 | 12,254 | 39,243 | 24,063 | ||||||||||||||
Total net sales |
$ | 49,020 | $ | 25,411 | $ | 93,936 | $ | 50,615 | ||||||||||
Operating profit |
||||||||||||||||||
Coil |
$ | 1,849 | $ | 299 | $ | 3,224 | $ | 1,009 | ||||||||||
Tubular |
2,564 | 660 | 4,874 | 1,429 | ||||||||||||||
Total operating profit |
4,413 | 959 | 8,098 | 2,438 | ||||||||||||||
Corporate expenses |
894 | 506 | 2,031 | 1,270 | ||||||||||||||
Interest expense |
— | 14 | — | 23 | ||||||||||||||
Interest & other income |
(51 | ) | (2 | ) | (61 | ) | (4 | ) | ||||||||||
Total earnings before taxes |
$ | 3,570 | $ | 441 | $ | 6,128 | $ | 1,149 | ||||||||||
| September
30, 2004 |
March
31, 2004 |
|||||||||
Segment assets |
||||||||||
Coil |
$ | 20,572 | $ | 21,770 | ||||||
Tubular |
22,112 | 20,624 | ||||||||
| 42,684 | 42,394 | |||||||||
| Corporate assets | 7,908 | 3,634 | ||||||||
| 50,592 | 46,028 | |||||||||
Segment amounts reflected above are stated in thousands. General corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate executive and accounting salaries, professional fees and services, bad debts, accrued profit sharing expense, corporate insurance expenses and office supplies. Corporate assets consists primarily of cash and cash equivalents and the cash value of officers’ life insurance.
NOTE F — RESTATEMENT:
In connection with the Company’s review of its accrual for accounts payable at December 31, 2004, the Company discovered that it had over accrued accounts payable at September 30, 2004. The error occurred as the result of double booking a liability for materials received. During the quarter ended September 30, 2004, the Company received steel coils and recorded a liability for this purchase. Subsequently, these same coils were shipped to other companies for processing into slit coils or pipe. After processing, the Company received the material and incorrectly recorded a liability for the entire receipt instead of only the processing and shipping charges. Accordingly, our consolidated financial statements for the three and six months ended September 30, 2004 are being restated to correct the accrual for accounts payable.
Set forth below are the originally reported and as restated amounts:
Balance Sheets
| September
30, 2004 as Reported |
September 30,
2004 as Restated |
|||||||||
Accounts
payable and accrued expenses |
$ | 12,592,548 | $ | 12,100,552 | ||||||
Income
Taxes payable |
78,685 | 223,714 | ||||||||
Employee
compensation and related expenses |
918,270 | 983,706 | ||||||||
| Retained earnings | 352,620 | 634,151 | ||||||||
Income Statements
| Three Months Ended September 30, 2004 |
Six Months Ended September 30, 2004 |
|||||||||||||||||
| as Reported |
as Restated |
as Reported |
as Restated
|
|||||||||||||||
Costs
of goods sold |
$ | 44,486,288 | $ | 43,994,292 | $ | 85,201,445 | $ | 84,709,449 | ||||||||||
| General
selling and administrative costs |
1,441,420 | 1,506,856 | 3,093,901 | 3,159,337 | ||||||||||||||
Current
income taxes |
1,129,051 | 1,274,080 | 2,044,251 | 2,189,280 | ||||||||||||||
Net
earnings |
1,979,602 | 2,261,133 | 3,598,431 | 3,879,962 | ||||||||||||||
Net
earnings per share |
||||||||||||||||||
Basic |
$ | 0.26 | $ | 0.30 | $ | 0.47 | $ | 0.51 | ||||||||||
Diluted |
$ | 0.25 | $ | 0.29 | $ | 0.46 | $ | 0.50 | ||||||||||
Statements of Cash Flows
| Six Months Ended September 30, 2004 |
||||||||||
| as Reported | as Restated | |||||||||
Net
earnings |
3,598,431 | 3,879,962 | ||||||||
Accounts
Payable and accrued expense |
2,387,895 | 1,895,899 | ||||||||
Employee
compensation and restated expenses |
112,130 | 177,566 | ||||||||
Federal
income taxes payable |
(1,055,748 | ) | (910,719 | ) | ||||||
6
FRIEDMAN INDUSTRIES, INCORPORATED
Part II — OTHER INFORMATION
Item 6. Exhibits
| 31.1 — | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman | |
| 31.2 — | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper | |
| 32.1 — | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman | |
| 32.2 — | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper | |
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FRIEDMAN INDUSTRIES, INCORPORATED | |||
| Date April 19, 2005 | |||
| By | /s/ BEN HARPER | ||
|
|
|||
| Ben Harper, Senior Vice President-Finance | |||
| (Principal Financial and Accounting Officer) | |||
10
EXHIBIT INDEX
| Exhibit No. | Description | |
|
Exhibit 31.1
|
— Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman | |
|
Exhibit 31.2
|
— Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper | |
|
Exhibit 32.1
|
— Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Jack Friedman | |
|
Exhibit 32.2
|
— Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Ben Harper | |